Financial Planning

The purpose of health insurance is to provide some money if you fall seriously ill or have an accident, potentially affecting you for many years. In this case, you would probably stop earning, although your financial needs might well be greater than ever. The state benefits you would receive would be relatively low and would be most unlikely to provide sufficient income to meet your needs, especially if you have substantial rent or mortgage payments to make. You might also need capital, for example to make adaptations to your home or to pay off debt. A rainy day fund can help in the short term here, but it’s not a complete solution. The precise level of fund required can vary from person to person, but, as a minimum, three to six months’ expenditure could be used as a guide.

Virtually everyone who is working therefore needs some kind of health insurance to provide financial protection if their earnings are affected by serious illness or disability. Even if you have no financial dependents, there is a very strong chance that you will need health insurance if you are responsible for paying your own bills.

Income Protection Insurance

Income protection insurance – sometimes called permanent health insurance – pays a weekly or monthly income if you cannot work because of illness or disability. You may think that you do not need to worry about this kind of cover, but the fact is that in the UK there are nearly 14 million people with a limiting long-term illness, impairment or disability. The prevalence of disability rises with age. Around 8% of children are disabled, compared to 19% of working age adults and 45% of adults over state pension age.

You can generally be insured to receive a monthly benefit of up to about half to two-thirds of your pre-tax income. If you have no income, you may still be able to take out a policy, but the maximum payout will be limited, generally to an income of about £20,000 a year.

Some employers provide income protection insurance, but a very large number do not. Employers are only legally obliged to pay employees, in the form of statutory sick pay, for the first 28 weeks of their being unable to work because of an illness or injury; even then not everyone will qualify, and the employer does not have to pay the full salary. It is worth specifically checking the position with your employer. If your employer provides cover, the benefits generally continue to be subject to income tax and national insurance contributions, at least initially, but you won’t usually have to pay tax on the premiums. If you take out the cover yourself, the benefits are tax free.

Income protection insurance pays after a waiting period on each claim and can usually continue to pay you up to retirement age, unless you recover and return to work sooner. The cover normally lasts until you are aged 60 or 65, but you can arrange the insurance for much shorter periods – say five or ten years – and this cover is much cheaper because it is substantially less valuable. The chances of having a serious illness or disability increase substantially as you grow older.

During the Covid-19 outbreak, insurers have experienced a rise in queries regarding income protection insurance. Generally people who are simply self-isolating are unlikely to be covered. However, a small number of providers will consider claims for self-isolation where it is medically advised. Those with severe coronavirus symptoms that continue beyond the waiting period will start to receive their monthly payout if those symptoms mean they meet their insurer’s definition of incapacity (e.g. they are unable to work at their own occupation). Some providers are restricting cover for respiratory conditions for new customers.

Income protection can appear relatively expensive but can be very valuable if you fall seriously ill. If you are considering taking out a policy these are some of the things you should consider.

Example David works as an IT manager. He earns a good salary and he lives a comfortable lifestyle. In the event of being unable to work due to illness, he would receive full pay for up to four weeks, but would then only receive statutory sick pay and, later, state benefits if he is eligible for them. He would not be able to continue to meet his commitments and may have to sell his flat should the illness continue into the long term. David might consider income protection to provide an ongoing income after his employer stops paying him. This could continue until his selected retirement age or, if he wanted to keep premiums down, for a limited term of, say, five years.

Critical Illness Insurance

Critical illness insurance pays a lump sum if you are diagnosed as suffering from a specified illness. Over 30 conditions may be covered, including serious cancers, heart attack and stroke. Some providers may cover significantly more – even up to 100 different conditions.

The advantage of critical illness insurance is the benefit is paid very early, shortly after diagnosis of the illness, without any significant delay – unlike the usual longer waiting periods of income protection. It is also in the form of a lump sum that can allow you to make rapid adjustments to your lifestyle and pay off loans. The main drawback is that this type of health insurance only covers a limited set of conditions. These are common disabilities, but critical illness insurance generally does not cover some important conditions, such as musculoskeletal pain and most mental illnesses.

People often take out critical illness insurance to cover a mortgage or other loan. Because you are significantly more likely to have a critical illness than die whilst you are of working age, it is more expensive than life insurance. But this reflects the likelihood of needing to claim on the policy.

Critical illness is an important and valuable addition to income protection, but it should not normally be regarded as a replacement for it.

Whereas an income protection policy will pay out to those suffering from severe Covid-19 symptoms beyond the waiting period where the insurer’s definition for incapacity is met, Covid-19 itself is not covered by critical illness policies. However, if the coronavirus leads to one of the conditions listed on your policy, for example a heart attack or a stroke, and you survive the waiting period, the policy would pay out.

Again if you would like to discuss your income protection requirements in more detail, please do give us a call.

This article is for general information and is not intended to be advice to any specific person.

Private medical insurance (PMI) pays for private health treatment. Depending on your budget, you choose what you want covered – just in-patient or day-patient treatment, or out-patient consultations and medical tests. PMI pays for the treatment of acute conditions only. It does not cover chronic conditions (except, generally, at onset) and pre-existing conditions may also be excluded. As part of the response to the Covid-19 outbreak, providers are continuing to delay non-urgent treatments to free up beds for the NHS. Treatments will be delivered and funded by the provider once the beds are no longer required.

Health cash plans pay for everyday health costs, typically 75%–100% of costs for dentistry, optical and consultation costs, plus a small sum for each day spent in hospital, subject to an annual limit. Other dental options include capitation (maintenance) plans, which are agreed with your dentist and cover likely costs over the next year, and dental insurance. Plans may require an initial waiting period to stop people taking out cover for known treatment then cancelling the policy.

We can assist you in obtaining medical insurance by researching the marketplace for the most suitable cover. So, if you wish to discuss this area of protection in more detail, please do get in touch.

Financial resilience is the ability to recover quickly from an unexpected financial shock. Many of us insure our homes and cars without really thinking about it, but far fewer insure their lives and incomes. And yet, if you were to pass away, how would those you leave behind be able to manage financially? If you were unable to work due to illness, how would you find the money to pay your household bills? Savings can and do help in the short-term. But what happens when they run out? What happens if an illness goes on for three, six, or even 12 months? What then? Covid-19 has focused many people’s minds on the need for an adequate rainy day fund and financial protection. While nothing can ease the emotional distress the virus has and is continuing to cause, it is possible to lessen its financial impact on those affected and their loved ones. Life and health insurance protection underpins most good financial planning.

Insurers are constantly looking at new ways to meet people’s needs, such as through life insurance that includes critical illness and/or income protection insurance, which may be cheaper than taking out separate policies. It is important to look at your options – what do you need most now? How much cover do you need? Can you defer some cover until a future date? What can you do to protect yourself and your loved ones financially in light of the Covid-19 pandemic?

Our role is to do four things:

• Know enough about you to make the right recommendations. We take the time to understand your financial situation, your needs, preferences and views. Whether for example, you would feel comfortable accepting that premiums may rise, or if you want a guaranteed solution.
• Help you to identify your priorities. If you were insured against absolutely everything, like most people you may find premiums unaffordable. We don’t expect you to be an expert on life insurance, but we need to know your attitude to risk. Working out how things might change in the future and prioritising matters could be a sensible thing to do.
• Recommend solutions to meet your needs. The right policy is important, but a will or writing policies in trust could be too.
• Review. Your financial protection needs change over time. Regular reviews are essential to ensure your plans continue to meet your needs.

If you would like us to assist in finding the most suitable protection for you, we will be happy to help!

It’s no secret that financial scams are becoming more sophisticated in 2020. Earlier in February, The Guardian ran a story about how one unfortunate retired couple who were conned out of £43,000, and who are still struggling to gain compensation (their banks are claiming the couple were negligent). In this particular case, the couple received a call from a scammer who claimed to be a bank fraud investigator insisting that their savings could be stolen. They instructed the couple to phone their bank using the number on their bank card. However, as the couple did so, the scammer was able to cleverly keep the line open and divert them to a fake call centre.

We sometimes encounter sad stories such as these, or “near misses” which could have resulted in financial disaster. So what can you do to protect your family finances against malicious activity? We offer this short guide to help.

#1 Be careful on public WiFi

It has been estimated that at least 594 million people across the globe have been victims of cybercrime. Much of this can be attributed to the rise of public WiFi, which most of us admittedly use due to its convenience (especially when abroad). However, many of these networks are unsecure and fail to have adequate encryption measures in place, allowing hackers to intercept your sensitive data if you log into your mobile banking or make an online purchase.

One way you can avoid this danger is simply to conduct these kinds of activities on your trusted mobile network, and not on public WiFi. Another option, however, especially if you have no access to data, is to connect using a secure virtual private network (VPN), which encrypts the connection to and from your mobile device, creating a secure “tunnel”.

#2 Beware of unsolicited calls

We frequently speak to people who have received suspicious calls about their savings or pension. This is particularly common amongst senior citizens, who are deemed by scammers to be more vulnerable and in possession of greater sums of wealth than younger people.

The first important thing to note is that since early 2019 there has been a UK ban on pension cold calling. So, if you receive a call about your pension from someone you do not know, it is a good idea to consider ending the conversation and notifying your financial adviser. This ban does not stop such calls from happening, of course, so it’s important to always be vigilant.

You could also insist on something in writing from the caller. In other words, tell unsolicited callers: “I never follow instructions from unannounced calls. Write to me so I have something to refer to.” If the person on the phone pushes you because the matter is “urgent” or because “utmost secrecy is required”, then take this to be a red flag.

#3 Paper shredding

Without thinking, many of us throw away receipts which contain details of our credit card or debit card number. This is often where identity theft starts, so it would be prudent to invest in a paper shredder. Also, keep a regular eye on your bank statements or mobile banking (using a secure connection) to monitor any suspicious activity.

#4 Keep software up to date

Many of us are also quite lax when it comes to updating our security and antivirus software for PCs and mobile devices. Be careful not to get into the habit of simply pressing the “later” button when an important app or firewall program prompts you for an update. Many scammers can exploit open holes within these protective layers of security, so it’s important to keep them closed.

#5 Browse carefully

The internet is a fantastic way to manage your wealth and finances, using online investment platforms and mobile banking. Be careful, nonetheless, to check carefully which websites you visit and ensure they are secure. One simple way to do this is to check the website address in your browser to make sure it starts with “HTTPS” (not HTTP), which helps to encrypt the connection between your computer/device and the website.

Also, be aware when using email, text and other messaging services such as WhatsApp. If an unknown company sends you a message with a link (e.g. to your Amazon or iTunes account), think twice before clicking on it. Quite often these are fraudulent links to fake websites, dressed up to look like the real thing.

Exercise caution with friends and family as social media profiles and email accounts can sometimes be hacked and send these kinds of messages. If you receive a message about a new sales offer, for instance, consider typing the web address separately into a trusted search engine to find it, rather than simply clicking on a link which might take you somewhere unsafe.

This content is for information purposes only. It does not constitute investment advice or financial advice. To receive bespoke, regulated advice regarding your own financial affairs, please get in touch to speak to one of our independent financial planners here at FAS.

The demographic map of the UK is changing. Most of us are now living longer; in 2017 those aged 85+ were 1.35m in number, and this figure could reach 2m by 2031. Although this is wonderful news in many ways (more time with our loved ones!), it also brings significant challenges when it comes to financial planning.

First of all, it implies that people’s retirement funds will need to stretch further compared to previous generations. In 1980, for instance, an Englishman aged 65 had a 1/1000 chance of reaching 100 years old. Today (nearly 40 years later), those odds have shrunk to around 1/100.

This increased longevity is likely to put additional strain on the already overstretched State Pension and is one of the reasons why most employers are no longer offering employees Defined Benefit pensions (which pay a guaranteed lifetime income in retirement). Careful financial planning will, therefore, be needed more than ever to ensure we have the income we need in our later years.

Secondly, increasing life expectancy is also projected to accompany an increase in health problems amongst older people. In particular, research shows that the number of retired people with diabetes, depression, cancer and dementia is likely to at least double by 2035. Many of these conditions require some level of professional care, which come at a significant cost.

Given these trends, projections and figures, it is little wonder that at FAS we are often asked about what people can do to prepare for the possible costs of their future long-term care. In this short guide, we’ll be sharing some of our thoughts on this important subject. If you want to discuss your care strategy with one of our experienced financial planners, please do give us a call.

The Cost of Care

In 2019-20, the precise amount you pay for care depends on a range of factors including:

Where you live in the country.

The level of care you need (e.g. 24/7 intensive or temporary and residential).

The quality of the care home in question.

Your financial situation.

At the moment, there are around 400,000 people living in care homes across the UK; a figure which is set to rise to 1.2m by 2040. Residential care costs can vary greatly, but typically range from £600-£900 per week. Indeed, some people face annual care costs exceeding £50,000.

Ways to Fund it

£50,000 and similar figures are clearly eye-watering for most people to look at. After all, just 3-years in residential care could cost £150,000; enough to wipe out a significant portion of an Estate, and by extension a family’s Inheritance. How, then, can you prepare your finances for this large, yet unpredictable cost in the future?

In 2019-20, those possessing less than £23,250 in assets are entitled to financial support from their local council, to help cover the fees. If you (or a dependent, child or spouse/partner) continue living at home whilst you receive care, then the value of your house is not normally counted within the means-test determining whether you are eligible for council support.

We do not recommend that you deliberately deprive yourself of assets in order to try and get around this system. Not only does this leave you financially vulnerable, but the council is also likely to detect such deprivation strategies and calculate your care fees as if you still owned the home/assets you have sold or given away.

What, then, are some of the other options you can consider with your financial planner when it comes to creating a strategy for long-term care funding?

Own Income & Family

Some people are in the fortunate position where their siblings, children or other loved ones can contribute towards the costs of their care. This, combined with your own pension income as well as other savings and investments, could be enough to meet your care costs.

Property

Many people are cash-poor but asset-rich by owning a property. In such circumstances, downsizing or Equity Release could be an option to access funds needed to cover care costs. These are hugely important financial decisions with far-reaching implications for your financial plan, so we recommend that you speak with a financial planner about any decision or strategy involving using your property to fund your long-term care costs. It might be that other, more appealing options are available to you.

Care/Immediate Needs Annuity

With the help of an experienced financial planner, it is possible to find a good insurance plan which can help you meet your care costs. These plans usually involve paying a company a one-off lump sum in exchange for a guaranteed lifetime income (tax-free), which would be paid directly to your care home. The amount you pay for the annuity will vary depending on factors such as your age and health.

Invitation

Many commentators have described the UK’s care system as in a state of “crisis”, and many people are understandably worried about how they will cover these possible future costs. However, at FAS we can help you can assess your options with a clear mind and with the best information available.

This content is for information purposes only.

Inheritance can be a thorny topic, which we often dread discussing with family. As a result, many people put the conversation off until their parents or grandparents actually die. By which point, deciding what to do with your inheritance can feel somewhat overwhelming, on top of the emotional turmoil and grief you are likely to experience.

In light of this, whilst it might be a difficult conversation, it can be a good idea to think about having it now (well ahead of time) if this is possible. It can save a lot of pressure for yourself later, as well as avoiding potential family fall outs.

Having a clear grasp of what is coming to you can be immensely helpful for your financial planning. However, it’s important to be realistic. Millennials in particular (i.e. those born between 1981 and 1996) tend to have very inaccurate expectations about how much wealth they will one day inherit from their parents, anticipating a sum of around £130,000. In all likelihood, however, the median inheritance currently stands at £11,000.

The place of an inheritance in financial planning

Of course, some fortunate people will inherit more, and £11,000 is certainly nothing to turn your nose up at. This sum could make a huge difference to your family. However, it’s important to keep your potential, future inheritance in perspective. There are many events out of your control which might affect how much you eventually receive.

For instance:

● Unforeseen taxes/debts. Your parents or grandparents might have promised you tens of thousands of pounds one day. However, it is very difficult for you to know the full nature of their wealth or financial situation. They could be facing an inheritance tax bill or debt repayment which eats into the value of your inheritance, when it comes to dealing with the Estate. This can happen even if parents appear financially astute.

● The cost of care. Your parents or grandparents might be very healthy now, but sadly none of us know what will happen in the future. Dementia, Alzheimers and Parkinsons affect thousands of people in the UK, often leading to them needing around-the-clock professional care. The fees for these services can be very high and can easily reduce the value of an Estate, which would have otherwise been passed on as an inheritance. Care Home fees, for instance, can cost over £30,000 per year which residents are expected to pay themselves, if they have over £23,250 in capital assets.

● Remarriage. In reality, it is quite common for people to remarry later in life. This might occur following divorce, or perhaps bereavement of a husband or wife. Regardless of how it might happen, this could affect your inheritance since, by default, the Estate will be distributed according to the Rules of Intestacy, if there is no Will in place stating what should happen in the event of death. In this instance, if the Estate is valued at less than £250,000, then the surviving husband or wife will receive everything.

What are the implications of all this? Well it basically means that for most people, an inheritance should take on a “supplementary” role rather than “primary” pillar within your financial plan. In other words, if one day you do receive the inheritance you hope for, then it will be a welcome addition to your finances and wealth. If it does not arrive in the form, timing or manner in which you might expect, then your financial plan will not be affected or ruined as a result.

Ways to use inheritance money

So, what are some options for your inheritance money, should it come your way?

1. Settle debts. If you have any debts weighing heavily on your mind or monthly bank balance, then it may be a sensible idea to consider paying these off or reducing them. For instance, clearing £200 in monthly debt repayments could free up a lot of breathing space, allowing you to place more funds elsewhere in order to build up your assets (e.g. saving into a pension).

2. Emergency funds. If you do not already have 3-6 months’ worth of living expenses saved as an emergency fund, then it can be a good idea to commit some of your inheritance money towards building up this safety net. This will give your family peace of mind and financial stability in the unfortunate event of either you or your partner losing a job or needing to suddenly cover an expensive bill (e.g. a replacement boiler).

3. Pay off the mortgage. If one of your main financial goals is to live mortgage-free as soon as possible, then paying off your mortgage (either as a lump sum or regular mortgage overpayments) could be an attractive option. Be careful to check your mortgage lender’s terms, as there can often be charges for repaying your mortgage debt over certain thresholds.

4. Invest some of it. If you deposit a substantial inheritance into an ordinary savings account, then in today’s low interest rate environment, it is likely to start losing its value over time, due to inflation. However, investing it in a pension fund or a Stocks & Shares ISA could be a way to help the money grow over time.

5. Enjoy it. Perhaps you are in the fortunate position where you are already well on track to achieving your financial goals and could instead put the money towards something more luxurious – maybe you would prefer to treat your family to an lovely holiday or buy a new car. If so, then enjoy!